Ecuador, Swept by Inflation and Unrest, Brakes the Economy

By LARRY ROHTER

Published: March 13, 1999

RIO DE JANEIRO, March 12—
After a two-day strike that paralyzed commerce in Ecuador and sparked clashes between security forces and demonstrators, Ecuadoreans awoke today to find gasoline prices more than doubled, many of their bank accounts frozen and the country's politics still in turmoil.

President Jamal Mahuad announced a sweeping austerity package late Thursday, after the general strike, which was called by labor unions, opposition parties and student and indigenous groups. At least 235 people were arrested in skirmishes between demonstrators and 15,000 soldiers and police officers who were mobilized after the Government declared a 60-day state of emergency on Tuesday.

Ecuador's 39 commercial banks, the targets last week of huge withdrawals by depositors who feared the banks were on the verge of collapse, remained shuttered today for the fifth consecutive business day. President Mahuad promised that they would reopen on Monday, but imposed severe restrictions, limiting withdrawals to 50 percent of most checking and savings accounts and freezing the remaining funds for up to a year.

''Confronted with this crisis, I could have done what many have done: nothing,'' Mr. Mahuad said in a televised address to the 12 million Ecuadoreans. ''But you elected me to do the right thing, not to choose the easy way out.''

Among the other austerity measures he plans is an increase in the value-added tax to 15 percent, from 10 percent, a measure that has drawn strong opposition.

The strike was called in an attempt to force Mr. Mahuad, a former Mayor of Quito, the capital, to rescind earlier austerity moves that froze salaries of public workers and ended subsidies on gasoline and other fuels.

But as the left warned of further protests, conservatives took a different but equally disenchanted view. Mr. Mahuad's chief aide, Jaime Duran, had promised ''a move toward a radically different economic model,'' but business leaders said the Government's measures were misdirected and fell well short of what was needed.

''The President has wasted our time,'' Joaquin Zevallos, the president of the Federation of Chambers of Commerce, said today. ''You do not build a country with more price and tax increases.''

President Mahuad, 49, a Harvard-educated lawyer, took office last August, inheriting what he acknowledges is Ecuador's worst economic crisis since the Depression:

Since January the value of the sucre, the national currency, has fallen in dollar terms by more than 40 percent, with most of the decline occurring last week.

The Minister of Finance, Ana Lucia Armijos, said today that the worst may lie ahead, at least as regards inflation. ''These are measures aimed at prices, and there is going to be a spike in prices before the inflation rate starts to slow down,'' she said in a radio interview.

There had been much speculation before the President's speech that he might follow the path taken by Argentina and decree either parity between the sucre and the dollar or outright ''dollarization,'' in effect abandoning the sucre altogether.

He did not take either step, but said ''it is possible'' he may do so later, though only if he succeeds in implementing his reform package swiftly.